Monday, March 18, 2019

Monitor Asks FERC to Cut PJM Capacity Offer Cap

By Christen Smith

Market Power Alleged

PJM’s Independent Market Monitor asked FERC last week to order changes to the RTO’s Capacity Performance assumptions, saying the current rules allow sellers to exercise market power.

PJM Monitor Joe Bowring | © RTO Insider

The Monitor said PJM’s default market seller offer cap (MSOC) has been inflated by the “unreasonable and unsupported” expectation of 30 performance assessment hours (PAHs) annually. As a result, the Monitor said, it has been prevented from effective mitigation of market power, able to subject only a small number of very high offers to unit-specific cost review.

“The public cannot rely on … auctions using the current default MSOC to ensure just and reasonable capacity market prices,” the Monitor said in its complaint, filed Thursday (EL19-47).

Unit-specific MSOCs are supposed to be based on avoidable costs and the opportunity cost of taking on a CP obligation, with its expectations of bonus payments or penalties for performance during an emergency. (The time span for measuring performance was changed from PAHs to five-minute performance assessment intervals (PAI) in compliance with FERC Order 825 in 2018.)

“Given that the … the actual expected number of PAH (PAI) in the energy market is a very small number close to zero, the opportunity cost is below the net avoidable cost of most resources, and therefore the competitive offers of most CP resources are not based on the opportunity cost of taking on a capacity performance obligation,” the Monitor said.

Auction ‘not Competitive’

In August, the Monitor concluded that ratepayers were overcharged by $2.7 billion (41.5%) in the 2018 Base Residual Auction because of economic withholding encouraged by the inflated MSOC. (See IMM: PJM 2018 Capacity Auction was ‘Not Competitive.)

In October, the Monitor warned PJM it would “circle back” to the issue after the Members Committee rejected Tariff revisions altering the existing calculation. (See “Market Seller Offer Cap Balancing Ratio,” PJM MRC/MC Briefs: Oct. 25, 2018.) RTO staff said they believed no further investigation of the issue was required.

The rejected proposal was one of four advanced through the stakeholder process after PJM reported its first load shed event since implementing PAIs as part of the CP overhaul in 2015. (See “PAI Fallout,” PJM Market Implementation Committee Briefs: June 6, 2018.)

The incidents occurred May 29 after a transmission line and a transformer at the Jackson Road substation in American Electric Power’s transmission zone tripped out of service. With three other transmission lines offline for maintenance, the outage caused concerns about being able to deliver power in a section of northwestern Indiana.

A PAI is triggered when PJM determines a supply reliability issue exists and provides credits for generators that overperform their capacity commitments and penalties for those who underperform. No credits or penalties were assessed in this incident.

PJM’s Inaction ‘Misses the Point’

During stakeholder discussions, the Monitor suggested using 60 PAIs or five PAHs — compared with the current 360 PAIs/30 PAHs — in calculating a more appropriate seller cap. While other members disagreed with the suggestion, the Monitor is more concerned with PJM’s decision to drop the issue entirely.

The Monitor said “PJM misses the point” in asserting that it has no basis for changing the rule after the failure of the stakeholder vote.

It described the RTO’s opposition as “inconsistent” with existing analysis, noting most resources using the default MSOC offered below that number in BRAs.

“The failure of stakeholders with divergent financial interests to agree on this issue is not evidence supporting the continued use of a number of PAI (PAH) that was excessive when it was introduced and which evidence shows is even more excessive now,” the filing reads. “The failure to act is effectively support for the excessive MSOC.”

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